The electronic commerce emerged in the mid-1990s as commercial transactions over the Internet. This includes buying and selling of goods and services through business-to-consumer (B2C), business-to-business (B2B), and consumer-to-consumer (C2C) markets. However, the electronic commerce also includes the exchange of information not related to the buying and selling of goods.
As the electronic commerce involves, the Internet has become an overwhelming tool for consumers to search and purchase goods and services using Internet-based systems. The popularity of the electronic commerce is due not only to the fact that the Internet provides online shoppers with conveniences and choices, but because this technology has also rendered the seller's location less an issue. However, the goods purchased on the Internet, are delivered in the physical world. Thus, shipping companies, which are in charge of conveying these goods from the seller to the buyer, are vital in online retail sales.
While technology has allowed shipping companies to reduce operating expenses, their success still depends a great deal of economical factors related to the physical world. For example, the shipping freights associated to the delivery of a potential parcel are based on the locations of the seller and buyer, among other factors. Thus, regardless the way technology enables goods to be traded on the Internet, various factors in the physical world, where parcels are conveyed, continue to impact the shipping charges associated to delivering the goods purchased on the Internet.
As it is known in online retail sales, the carrier approaches the buyer via the seller of goods, as the middleman. Sellers provide the shipping options and charges associated to the delivery of orders placed with them. On the other hand, carriers compete through discounted shipping rates that are offered to the sellers of goods, as a marketing incentive to handle their delivery volume. These practices are common on Web-based (and offline) retail and are the source of many problems and concerns among the online trading community.
Indeed, as the popularity of the electronic commerce increases, shoppers become more experienced, discerning, selective, and demanding. While Web-based systems enable buyers and sellers to trade goods on the Internet, the shipping charges associated to the delivery of these goods drive the majority of online shoppers to abandon their shopping cart after seeing these charges.
Although many merchants use new technologies (such as shipping calculator) to help online shoppers estimate shipping freights on their Web sites, in many cases they lack the resources needed to provide accurate shipping charges. As the Internet has transcended geographic barriers, a seller who targets a global market, must design a system capable of handling local and foreign shipping requirements, such as custom and duty charges in foreign countries. These requirements add to the overhead associated to selling on the Internet, including marketing goods to consumers and keeping them as customers. While such a system can be very expensive to design and maintain for the average seller, many merchants are not equipped enough to set up and/or maintain these operations.
Since the seller provides the shipping options associated to the delivery of the orders placed with him, many merchants use the delivery charges as a profit center by overcharging their customers. Online merchants also use discounted shipping rates offered by some shipping companies for further profit, by charging the full shipping price to their customers. Hence, online consumers suspect that the shipping and handling costs they're asked to pay are sometimes unreasonable, while other shoppers believe they're being gouged for further profit on shipping costs. As a result, the majority of online shoppers regularly abandon their shopping cart before completing their orders, which translates to a lost in sale for online merchants. The most common causes of shopping cart abandonment are attributed to expensive shipping charges and lengthy delivery, while the majority of these consumers blame unreasonable shipping charges.
Although online merchants ought to use shipping calculators to provide accurate shipping costs on their sites, online shoppers are still concerned about being gauged for profit on these charges. Hence, some shoppers allay their fears by shopping only online merchants located in their area, to reduce the shipping freights associated to their online purchases. Other consumers use Internet search engines to find goods they intend to purchase offline. More specifically, these consumers search the Internet to find a merchant located in their geographic areas to purchase the desired good in a physical store. This way, they avoid paying for extra shipping and handling charges that might be associated to delivering the same purchase, if it was placed on the Internet with the same local merchant. As a result, local commercial search, e.g., those online consumers seeking merchants located in their areas, accounts for a significant portion of all Internet searches.
The shipping charges also contribute to make light goods (such as books, music & DVD, clothes, etc.) more popular among online shoppers because of relatively low delivery costs, while online shoppers use the Internet to find heavy goods they intend to purchase in a physical store. As a matter of fact, online shoppers say free delivery and handling are most likely to encourage their online purchases, and others prefer free shipping as marketing promotion. As a result, online merchants use periodic free shipping campaigns to hold on to more online consumers. However, most online merchants do offer free shipping for light products that are less expensive to ship.
On the other hand, since shipping companies approach the online shoppers through the merchants, the competition for the Internet market between these firms is essentially based on the discounted delivery rates given to online merchants. Thus, the delivery firms that cannot afford such discounts to merchants, because of limited resources, abandon the business opportunity generated by the Internet economy. For example, a small delivery firm can't compete against a large corporation that is best positioned to offer discounted shipping rates to online merchants, in their marketing strategies. This situation renders the shipping market less competitive, which is not advantageous for consumers. In addition, because shipping companies deal with online merchants and not openly with shoppers, their online marketing initiatives depend a great deal on the merchant's ability to deal with the issue of shopping cart abandonment, that impact on the portion of the shipping volume originating from online purchases.
Although the electronic commerce includes various systems tailored to enable buyers to trade goods and services on the Internet, none of these business models adequately deal with the issues discusses above.
Traditionally, there has been no acceptable way to enable buyers to openly select the shipping options for the delivery of their orders from independent carriers, which ensures fair, competitive (yet accurate) shipping charges, while eliminating the extra shipping freights charged by sellers, reassuring buyers about the accuracy of the shipping charges associated to the delivery of their orders, and minimizing the burden for sellers to providing the delivery options of the orders placed with them.
In addition, there has been no acceptable way to enable carriers to bypass sellers, and then openly compete for the shipping volume originated from Internet purchases made by buyers, which will ensure a fair competition among delivery firms since this alternative will eliminate the need for carriers to offer discounted shipping rates to sellers.